In order to reduce the money supply, money needs to be removed from circulation. In other words whoever is in charge of managing the money supply has to "sell" valuable stuff and then destroy the proceeds from the sale.

or a different lever there might be to increase transaction fees

Brilliant.

The problem is that we heavily depend on "oracles" in the real world, namely government published statistics and those could be manipulated, even if monetary policy was automated.

You could even use an oracle network to feed economic data to the chain

I think it's easier than this. The Blockchain should be able to calculate the velocity of money just by the amount of currency flowing in the last x blocks. That alone should do it.

There's also some potential for a bond-market whereby miners BID for bonds, and thus the Blockchain can determine the community expected future inflation rate, and factor that into its calculation of money supply growth.